The International Alternative to FASB’s Credit Loss Standard

Although FASB seems set on finalizing its proposal, there is another expected credit losses standard developed by the International Accounting Standards Board (IASB) called International Financial Reporting Standard 9 which would be less burdensome on credit unions and should also arguably be the expected credit loss standard under US GAAP.

IASB finalized its expected credit loss standard in April 2014 and it will apply to credit unions in Canada, Australia and most other jurisdictions outside of the United States. Whereas FASB’s expected credit loss approach would recognize expected lifetime credit losses on all loans, IASB’s expected credit loss standard is generally considered less stringent because it only recognizes expected losses on performing loans if those losses are likely to occur within the next 12 months. For loans that have experienced significant arrearage (such as being 30 or more days in arrears), IASB’s rules recognize lifetime expected credit losses in a way similar to FASB’s proposed standard, even if the loan later becomes re-performing.